By Bill Wilson — A July 18 report by the Cato Institute’s Michael Cannon has revealed a critical flaw in the Obamacare law that could ultimately prove to be its undoing. Namely, if states refuse to set up an insurance exchange under the law, the federal government lacks authorization to dispense some $800 billion in subsidies through a federally operated exchange.
This is important because, coupled with states’ option to implement the Medicaid expansion or not, it appears the key player in defunding Obamacare going forward will be the states. The Supreme Court ruling on Obamacare found that the law’s mandatory Medicaid expansion was unconstitutional, effectively giving states an opt-out provision that many now plan to take.
In short, if states refuse to expand Medicaid, and there is no funding for the insurance exchanges, Obamacare will effectively be defunded.
To deal with this flaw, the Internal Revenue Service (IRS) on May 24 simply issued a regulation effectively rewriting the law that would allow the federal government to fund the exchanges. Per Cannon, “With the stroke of [a] pen, the IRS (1) stripped states of the power Congress gave them to shield employers from that $2,000 per-worker tax, (2) imposed that illegal tax on employers whom Congress exempted, and (3) issued up to $800 billion of tax credits and direct subsidies to private health insurance companies — without any congressional authorization whatsoever.”
Such an arbitrary move on the Obama Administration’s part is hardly surprising. It comes atop a litany of usurpations including making recess appointments when Congress was not in a recess, forcing religious-affiliated institutions to fund contraceptives in violation of their teachings, and allowing for mortgage refinancing up to 125 percent of loan-to-value when the law placing Fannie Mae and Freddie Mac into conservatorship never allowed it.
But that does not mean the House of Representatives, under the leadership of Speaker John Boehner, has to stand by idly while the Obama Administration rewrites the law at will.
The government will run out of money come Sep. 30. Congress must pass a continuing resolution funding the government as of Oct. 1. In that resolution come up, the House should attach a budget rider that states the IRS cannot implement its regulation funding the federally operated insurance exchanges because it is contrary to congressional intent.
This is by far the most effective thing that Congress can do to help defund Obamacare this year. States already possess the option to opt out of Medicaid expansion. Giving them the power to gut the insurance exchanges as well could be the tipping point that kills the law.
Such a measure might not pass the Senate or be signed into law by Obama, but it sets the stage for what is to come. It also makes Mitt Romney’s position on funding for federally operated exchanges a critical issue on the campaign trail. Should he be elected, his administration could undo the IRS regulation via the regulatory process or executive order.
Immediate action by the House could help reaffirm the states’ power to defund Obamacare almost in full. Per Cato’s Cannon, “If enough states refuse to establish an Exchange, they can effectively force Congress to repeal much or all of the law.” All of which depends on Speaker Boehner’s willingness to make Romney’s job as easy as possible in 2013.
Bill Wilson is the President of Americans for Limited Government. You can follow Bill on Twitter at @BillWilsonALG.